GST cut to boost under construction properties, housing sales

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By Rohit Sharma


The Real Estate Sector which has been suffering from low sales levels for the last few years will see an increase in housing sale. On Sunday the GST Council said Real estate sector is one of the largest contributors to the national GDP and provides employment opportunity to large numbers of people. “Housing for All by 2022” envisions that every citizen would have a house and the urban areas would be free of slums. There are reports of a slowdown in the sector and low off-take of under-construction houses which needs to be addressed.

The council said GST shall be levied at an effective GST rate of 5% without ITC on residential properties outside affordable segment and 1% without input tax credit (ITC) on affordable housing properties.

The effective date for the new rate will be applicable from April 1.

“Industry lauds the GST rate cut on real estate to 5% on Non-affordable and 1% on affordable housing without Input tax credit as a welcomed and positive move which brings a big relief to the home buyers and helps to narrow down the demand mismatch gap. This announcement gives an impetus to the affordable housing and enthuses homebuyers to close the sale deals. The GST rate on cement has not been reduced as was expected, at 28 per cent it remains among the highest taxed inputs for construction – and there will be no input tax credit, so developers will face a challenging time.  Also, if the announcement was ‘with immediate effect’, we would have seen sales of residential real estate units in the current financial year,  April 1 aspect means we will see a rise in sales figures only in the next financial year”, said Dr Niranjan Hiranandani National President – NAREDCO

According to  Rahul Prithiani, Director, CRISIL Research said, “Over the past two years, preference for completed projects has been clearly visible because of the additional GST burden and execution risks associated with under-construction properties. With the RERA framework evolving and GST reduced, end-user confidence towards under-construction properties will improve. The reduction in GST is a mixed bag for realtors. While it will marginally increase end-user demand over the near-term, the withdrawal of input tax credit could impact the profitability of real estate developers. Developers will need a price hike of 2-4% to maintain margins-which seems difficult in the current market scenario.

“With the relief on GST load, “To ensure benefit reaches low-income buyers, the council has rightly considered 1% GST on affordable housing. Flats in the higher unaffordable category are going to get more accessible due to the 5% tax levy on them. However, not extending the benefit of an input tax credit (ITC) to developers might increase the price of apartments for low and middle-income groups in most cities. The pressure will be more on the affordable housing segment, which enjoys a lower output tax rate of 8% and the benefit of ITC. Even though it will help in lowering down the cost of high-value apartments in cities like Mumbai and Delhi it could create a dent for the Centre’s housing for all policy as overall cost for the buyer might increase despite cut downs in some sections, said  Manju Yagnik, Vice Chairperson Nahar Group.

Ashok Mohanani, Chairman – EKTA World said, “The expected cut down in GST rates for under construction projects to 1% & 5% for affordable housing will be great push for the sector, it will be seen as yet another revolutionary decision by the Government, bring in a wave of relief to the buyers. Homebuyers can once again look/opt to invest in properties if there is a reduction in the tax rates and moreover it will assist developers in clearing off their unsold stock. And on the other end, the decision to charge an additional 1% stamp duty surcharge on the value of the property may act as a mild dampener to roaring spirits.”

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